Property Management Basics

Rental Property as an Investment Strategy

Owning rental property is an excellent investment strategy that provides a monthly income as well as long-term portfolio stability in the form of property ownership. Many individuals purchase inexpensive homes for the sole purpose of collecting monthly rent in an amount sufficient enough to repay the promissory note on the property. If the individual owns enough properties in which rental amounts are higher than the mortgage payment, then this can provide the owner with a sustainable stream of income.

When this practice is applied towards multi-unit rentals, such as apartment or condominium complexes, the investment and income potential can be even more lucrative. The main issue with this is when multi-unit rentals are located in areas that are too far away from the landlord’s residence to enable effective management. When this occurs, the decision needs to be made as to whether to hire an on-site property manager or a property management company to look after the landlord’s interests.

When a Resident Manager Is Required

When considering an on-site resident manager, the property owner must take into account local and state laws that may require a property to maintain a resident manager if there are a certain amount of rental units on the premises.

Different states have different requirements as to the number of rental units, with some states requiring as few as nine units and others requiring a minimum of 16 before a resident manager must live on the property.

If a resident manager is utilized, the property owner should prepare a written property manager agreement that covers the manager's responsibilities, pay, hours, and that the employment is at-will and can be terminated at any time by either party. On top of this agreement, a separate month-to-month residential lease agreement should be prepared that states the residency of the manager can be terminated with 30 days written notice.

Property management companies are a contracted service and do not maintain employee status, unlike a resident manager that might require benefits such as vacation pay, sick leave, or health insurance. If the landlord owns more than one multi-unit rental property, it might be in their best interest to utilize a property management company to manage all of their properties, which provides the convenience of a single contact and possibly a reduced rate.